Pramerica SGR considers sustainability factors as a source of greater knowledge which must permeate the entire investment process for our socially responsible offerings.
In line with the PRI Principle No 1 and the obligations imposed by Regulation (EU) 2019/2088 on sustainability information in the financial services sector, the Company set out specific selection and monitoring methodologies of the financial instruments aimed at integrating the sustainability risks inside the Investment process of the assets under management.
The association between ESG/SRI strategies and the financial products’ categorization under SFDR regulations is reporting in the following table.
ESG integration procedures, for Art. 8 mutual funds with ESG integration.
1. Exclusion from the investible universe of corporate issuers involved in controversial activities
Pramerica SGR’s socially responsible mutual funds are an expression of our desire to contribute to positive change and the exclusion of the issuers of securities involved in controversial activities is an important step in this direction.
• Some controversial activities (e.g. anti-personnel mines, cluster bombs, munitions, tobacco production and pornography) are excluded from the sphere of investment in our ESG portfolios no matter how they may be involved.
• In other cases (e.g. gambling, manufacture and distribution of armaments for civilian use or conventional armaments, distribution of tobacco) consideration is given to the degree of involvement in the controversial activities in order to exclude companies which generate a significant percentage of their sales from these activities and whose core business activities do not conform to the environmental and social sustainability principles adhered to by Pramerica SGR.
Specific or more stringent exclusion criteria may be defined on the basis of the specific characteristics of some of Pramerica SGR’s socially responsible mutual funds.
2.Exclusion from the investible universe of government issuers with low sustainability ratings
Environmental, social and governance criteria provide the basis for the assessment of a country's economic, fiscal and social policies, both in current and prospective terms. To promote the importance of sustainability at government’s policies level, in the environmental, social and governance fields, Pramerica SGR defines exclusion constraints for Pramerica ESG products, linked to the sustainability merit of the country issuers. A country issuer, through its legislative system and its fiscal, social and environmental policies, has a significant impact on the sustainability of its citizens lives, of its territory and economy
3. Team of ESG specialists
The first step in assessing the sustainability of an investment consists of identifying specific ESG criteria, in terms of risks and opportunities, for the issuer, based for example on the geographical area or sector of activity.
In order to identify and assess material ESG risks and opportunities for each investment alternative we decided to employ a team of ESG analysts working across all parts of the investment area with a matrix structure and ESG specialists within each management team (government bonds, corporate bonds, equities and fund selection).
With ESG experts specialised by asset class working together in the investment area we are able to construct a solid approach to sustainable investments because we feel that ESG integration also requires shared expertise.
4. Informative dataset
Environmental, social and corporate governance criteria constitute a new point of observation for the analysis and selection of investment alternatives for our investors’ portfolios.
The ESG ratings and metrics available to our investment managers therefore constitute a fundamental dataset on which to base a complete due diligence for the analysis, selection and management of investments for our clients.
We consider that it is important to develop a solid and shared internal approach in order to be able to assess ESG risks and opportunities that allows us to integrate different and varied information and metrics:
• issuer derived information;
• studies by supranational bodies;
• detailed ESG ratings and metrics from providers specialised by corporate and government issuers and by funds;
• specialist provider analyses and outside studies;
• expertise developed in-house.
5. Portfolio ESG rating
Products that promote, among others, environmental or social features, or a combination of these, in compliance with good governance practices, include an explicit ESG factors integration in the analysis and selection of financial instruments to build portfolios characterized by an "ESG score" – defined through MSCI ESG Research data - better than:
- the reference parameter, for strategies with a benchmark;
- the investment universe, for strategies without a benchmark.
With the goal of monitoring the significance of the ESG score of each strategy, the Risk Management Service monitors that issuers without an ESG score do not exceed 20% of the net assets of the strategy.
This approach is not applied for ethical and best in class strategies.
6. Multi-asset approach
In order to allow our investors to invest in a portfolio created with a responsible approach, in managing our ESG solutions, we have developed an ESG specific due diligence for different types of investment instrument, and therefore for direct investments in corporate and government securities (equities and bonds), and for investments in funds.
For the purposes of ESG sustainability assessment, material ESG risks and opportunities differ not only according to the asset class and the sector in which the issuer operates but also on the basis of the type of instrument.
The ESG specific due diligence:
• Corporate issuers: we select and weight specific ESG indicators on the basis of the issuer’s field of activity and the materiality of the risk and performance factors.
• Government issuers: we integrate the performance indicators of a country with the ESG risk and opportunity factors which impact its value creation process and therefore with exposure to ESG risks and their management.
•ETFs / Mutual funds: the SGR process integrates proprietary quantitative selection with ESG analysis for fund and fund house, in order to be able to evaluate the third party products' sustainability approcach.
7. Green, social e sustainability bonds:
In bond asset class, particular attention is paid to "sustainable" issues with good financial evaluations, also related to the economic cycle, which allow to conduct the investment into projects with a direct impact on transition towards systems with a lower environmental impact and focused on particular social issues.
• Green bonds: bonds issued specifically to raise funds related to projects with clear environmental benefits (energy efficiency, pollution prevention, sustainable agriculture, protection of aquatic or terrestrial ecosystems, sustainable management of water resources, ..).
• Social bonds: related to projects aimed at solving or mitigating specific social problems.
• Sustainability bonds: combination of green and social projects.
For some of Pramerica ESG products, minimum investment constraints are moreover defined in Green, Social and Sustainability bonds. Pramerica SGR intends to participate in the transition to a more sustainable world and aims to support investment in Green, Social and Sustainability bonds, which represent a concrete commitment of issuers towards achieving the United Nations Sustainable Development Goals 2030 Agenda.
8. Engagement or active ownership:
We believe that to integrate ESG criteria in our investment philosophy it is important to have an in-depth knowledge of the companies we choose to invest in by maintaining a constant dialogue with management: at Pramerica SGR we have over one thousand meetings per year with European companies.
In each meeting, amongst other things, we discuss the impact of specific ESG issues in order to make a direct assessment of the company’s position, its objectives and its potential for improvement in the process of transitioning towards sustainable management.